There is a great demand to support on-line business transactions in a fully automated closed-loop information and payment exchange system. The demand is especially present in banking and financial applications that are partially automated.
For example, most banking institutions offer bill payment services through an outsourced third party. FIG. 1A shows one particular prior art bill payment system. A payor 100 sends an electronic mail message 101 authorizing an outsourced payment service 102 to pay one or more payees 104. The payment service 102 prints and mails a paper check on behalf of the payor 100 to each payee 104 specified by the payor 100. The payee 104 receives the paper check, endorses it, and deposits it with a bank 106 that the payee 104 is affiliated with. The payee's bank 106 clears the paper check with the payor's bank 110 through the Federal Reserve or local check clearing house organization 112.
FIG. 1B depicts a second prior art bill payment system. A payor 100 sends an electronic mail message 101 authorizing an outsourced payment service 102 to pay one or more payees 104. Typically, the payee is a large enterprise, such as a utility company. The payment service 102 collates several payments for a particular payor and sends to the payee's bank 106 an electronic check 117 that represents a lump sum payment. The electronic check 117 is received by the payee bank 106 and converted into a format 107 suitable for clearing with an Automatic Clearing House 108.
The payee's bank 106 issues the formatted check 107 to the Automatic Clearing House 108. The Automatic Clearing House 108 is part of the Federal Reserve Net Settlement System. Finally, at the designated time of day, the Automatic Clearing House 108 performs the check settlements and eventually performs a funds transfer by sending a credit 111 to the payee's bank 106 and a debit 109 to the payor's financial institution 110.
Additionally, the payment service 102 mails to the payee 104 a paper print out 113 detailing the payments made to the payee through the Automated Clearing House 108.
Although the prior art systems have worked well, they suffer a number of drawbacks. One problem with the system shown in FIG. 1A relates to the use of an intermediate outsourced service that relies on manual processing. The outsourced bill payment service 102 issues a paper check 103 that is mailed to the payee 104. The paper check 103 requires the payee 104 to physically deposit the check at the payee's bank 106. These steps increase the time that it takes for the payee 104 to receive payment. Another problem relates to the amount of time it takes to clear a transaction. Typically in the national system, funds are not settled for 2-3 days from the day the check is received by the institution. In order to assure the integrity and availability of funds, most institutions place holds on the availability of the funds until after checks clear. This causes inconveniences to both banks and end users.
The system shown in FIG. 1B, while using electronic checks, still requires substantial manual processing of payment information. What is needed is a fully automated bill payment system and method that is integrated with each banking institution and customer involved in a bill payment transaction.
FIG. 1C illustrates a proposed prior art bill payment system that is currently under discussion although not yet realized. A payor 100 electronically pays one or more bills by transmitting an electronic check 115 to a payee 104. The payee 104 electronically deposits the electronic check 116 in the payee's bank 106. The payee bank 106 settles the electronic check 116 with the payor's bank 110 through an electronic check clearing process 114.
A shortcoming of the prior art system of FIG. 1C is that it requires each electronic check to be digitally signed by its respective payor. The payors, as well as the banks and payees, must all be equipped with electronic check writing software and the appropriate hardware components, such as a Smart Card reader. The intended payor is the average consumer. It will take many years before this proposed system can be adopted by the average consumer and for the average personal computer to be equipped with a Smart Card reader. Also, having electronic checks generated by so many different parties inherently results in more mishaps and raises more issues of potential security breaches than "closed" systems where it is easier to verify the authenticity of payors and payees. Accordingly, there is a need for a more convenient means to facilitate electronic bill payment and one that has a greater assurance of security.